Growth, inflation and labour market all easing
The NAB SME Survey revealed very strong results across a wide range of indicators in Q2, suggesting that the non-mining recovery is broadening to include smaller businesses.
SME business conditions highest in six years, confidence above long-term average
The NAB SME Survey is the leading business survey of small businesses in Australia, and complements the comprehensive Quarterly NAB Business Survey. It offers a rich repertoire of insights into factors affecting smaller firms’ conditions by state, industry and size, as well as an assessment of their outlook for investment and output.
According to NAB Group Chief Economist Alan Oster, “This survey provides more evidence that the positive effects of the broadening non-mining recovery are spilling over into smaller businesses. While SMEs have continued to lag behind the broader business community, the gap between them has narrowed. However, strong trading and profitability conditions have had limited impact on SME labour demand so far.”
“Also encouraging is that better conditions were recorded by most industries. While tertiary services such as health, business and financial services etc. have performed well for some time, intermediate services such as wholesale have been playing catch-up in the last two quarters as well,” said Mr Oster. Wholesale conditions, in particular, have picked up strongly, supported by more favourable profitability and trading conditions. “The effects of higher import costs borne by the wholesale sector on the back of a low AUD appears to be ameliorating, both through a slower pace of growth in purchase costs and greater pass-through to retailers,” said Mr Oster. Meanwhile, health businesses reported the strongest conditions in the quarter.
“Better conditions by industry have translated into stronger conditions in most states in the quarter, except for WA,” said Mr Oster. As in the previous quarter, QLD again showed the biggest improvement (up 10 points to +11) to be the second strongest state after NSW, while WA reported the weakest conditions. “We continue to see NSW and VIC outperforming other states, while WA has lagged further behind, which is consistent with the difficult conditions in the mining sector. Encouragingly, however, all states were more confident in the quarter, with VIC being the standout, while WA was the least confident and the only state to report negative confidence,” said Mr Oster.
SME business confidence improved in the quarter to +5, exceeding its long-term average of +2. According to Mr Oster, “The improvement in SME confidence in Q2 is likely to reflect the improvement in conditions. It is worth pointing out that the survey was conducted prior to the Brexit decision and federal election and therefore does not reflect the possible shifts in sentiment due to these political events. However, our latest monthly NAB Business survey for June, which was polled during Brexit but before the election, did not show an adverse impact on confidence.”
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